Shaping the Future: Innovation in the Manufacturing Sector
Director, Research & Insights
November 22, 2023
The manufacturing industry is transforming significantly due to an increasingly challenging and complex landscape. Amidst supply chain, labor, and inflationary headwinds, manufacturers face sustainability and operational pressures that have exacerbated secular challenges and considerations. Facing this environment, the industry has turned to various innovative existing technologies that have pulled the industry closer to a future characterized by autonomous, intelligent, and connected manufacturing. As these and emerging innovations continue to gain in sophistication, adoption, and advancement, the manufacturing industry will be better equipped to navigate a shifting and uncertain global environment efficiently and effectively.
Manufacturing Investment Activity
Global private market investment activity within the manufacturing verticals skyrocketed in 2021, reaching $24.8 billion, representing an increase of nearly 120% compared to the prior year. Although activity has tapered in the ensuing period, it has remained above pre-pandemic levels.
There has been particular strength and resilience in the early pockets of the market, which have historically accounted for roughly 50% of overall activity. Although there has been a decline in proportional activity with the later stages of the market, Series A–C investments are the only portions of the market that have demonstrated relative stability or traction over the past three years.
North America has been the primary geographic source of private market investment activity, accounting for 48% of global activity, on average, from 2020-2022. However, North America’s relative proportion of activity has experienced a consistent decline over that same period. Concurrently, Europe has made incremental gains in proportional activity, whereas Asia has made significant strides in recent years. In fact, in 2022 and 2023, manufacturing private investment activity in Asia surpassed North America's.
Manufacturing M&A activity has largely mirrored funding activity, with North America accounting for the most significant proportion of activity in the recent past. The large spike in activity in 2021 was primarily driven by the acceleration in North American activity, which notched $220 billion in transaction value and accounted for 72% of aggregate transaction value. Over the past two years, the ensuing tapering in North American activity has resulted in a global slowdown in activity. However, Asia has demonstrated relative resilience, generating increasing M&A transaction value over the past four years – the only region to exhibit consistent year-over-year growth.
Current State & Driving Trends
The manufacturing industry grapples with a triple squeeze of secular headwinds: supply chain constraints, labor shortages, and the looming specter of inflation. This complex landscape demands a multifaceted approach to attain and sustain enhanced agility, competitiveness, sustainability, and efficiency. In response to these and other trend drivers, the manufacturing industry has turned to various innovative technological solutions, including tech-enabled sustainability initiatives, virtualization and connectivity, and computer-assisted applications.
Sustainability has emerged as a growing concern and priority area in the manufacturing landscape, driven by market demand, regulatory requirements, and social activism. Manufacturers, under increasing pressure to align with regulatory and industry sustainability standards, are pioneering innovative solutions to reduce their environmental footprint. Improved energy efficiency management, often considered the linchpin of sustainability, is a top priority. Manufacturers are embracing energy storage, microgrids, and renewable energy sources to manage costs and promote green energy practices. Furthermore, advanced materials and circular processes facilitate greater resource efficiency and reuse, emphasizing capturing and reusing carbon emissions and byproducts for future power generation and production.
Virtualization & Connectivity
The manufacturing sector is undergoing a digital transformation fueled by the convergence of virtualization and connectivity technologies. The Internet of Things (IoT) and other related and supportive technologies, such as computer vision, digital twin, and extended reality (XR) solutions, have reshaped manufacturing operations. IoT sensors enabling systematic connectivity and powerful edge data intelligence capabilities have equipped manufacturers with valuable real-time insights and response mechanisms, enabling proactive decision-making and adaptive strategies designed to improve efficiency, flexibility, and agility. XR and digital twin technologies, which can create virtual replicas of physical assets and processes, have allowed operators to augment existing assets and talent, address labor concerns, achieve greater scale, improve strategic planning, and enhance operational execution.
Alongside virtualization and connectivity technologies, the manufacturing industry vertical has also been reshaped through the proliferation of computer-aided applications, such as computer-aided design (CAD), computer-aided engineering (CAE), computer-aided manufacturing (CAM), and 3D printing. These robust solutions have provided manufacturers with the means to address labor headwinds while facilitating significantly improved operational efficiency, scale, and execution. Armed with computer-aided applications and 3D printing capabilities, the manufacturing industry has been able to automate and optimize critical processes across the manufacturing lifecycle. They have yielded new operational flexibility while promoting sustainability through efficient resource use and cost-effective materials. These computer-assisted applications have ushered in a new era of agile, efficient, and sustainable manufacturing, enabling manufacturers to meet market demands and thrive in an ever-evolving industry landscape.
Emerging Technologies in Manufacturing
In addition to the transformative technologies manufacturers currently utilize, the future innovation horizon holds even greater potential for revolutionizing industry operations, processes, and practices. The following technologies, which represent the future of the manufacturing industry vertical, will usher in a new degree of operational efficiency, adaptability, effectiveness, and performance.
Generative design is at the forefront of manufacturing innovation, revolutionizing how products are conceptualized and engineered. This cutting-edge technology leverages artificial intelligence and algorithms to generate numerous design iterations based on specified criteria. It empowers manufacturers to explore innovative and optimized designs that were previously inconceivable. By simulating various scenarios and constraints, generative design significantly reduces development time and costs while enhancing product performance and sustainability. It's poised to become a cornerstone in manufacturing, enabling manufacturers to create more efficient, lightweight, and innovative products.
Dark factories encapsulate a fundamental paradigm shift in manufacturing, representing a highly automated and self-sufficient approach. These facilities operate without direct human intervention, utilizing advanced robotics, AI-driven systems, and real-time data analytics to execute and optimize processes and functions. Dark factories ensure precision and consistency in production and address labor shortages, a pressing challenge in the manufacturing sector. With the ability to operate around the clock without interruption, they enhance efficiency, reduce costs, and improve overall productivity. This disruptive technology redefines traditional manufacturing processes, offering a glimpse into a future where lights-out operations are commonplace.
Neuromorphic engineering is pushing the boundaries of artificial intelligence and computing within manufacturing. Inspired by the human brain, neuromorphic systems are designed to mimic neural networks, enabling machines to process information in a highly efficient and human-like manner. In manufacturing, this technology holds the potential to revolutionize decision-making processes, improve automation, and enhance machine learning capabilities. Neuromorphic engineering can optimize manufacturing operations by allowing machines to adapt and learn from their environments, leading to greater flexibility and productivity.
The digital thread is weaving a seamless and interconnected tapestry throughout manufacturing. It represents the end-to-end integration of data and information across various stages, from design and production to maintenance and disposal. This technology ensures the traceability and transparency of products, enabling manufacturers to track every aspect of a product's lifecycle. It enhances quality control, supply chain visibility, and overall efficiency. The digital thread is becoming increasingly vital in achieving sustainability goals and regulatory compliance, as it facilitates the capture and analysis of data for continuous improvement in product development and manufacturing processes.
Nanotechnology is redefining the boundaries of what's possible in manufacturing. By manipulating materials at the nanoscale, manufacturers can engineer products with groundbreaking and innovative properties that improve efficiency and sustainability. In the manufacturing industry, nanotechnology is poised to revolutionize materials, coatings, chemicals, and sensors. These advancements lead to stronger, lighter, and more durable products. Nanotechnology also plays a pivotal role in energy efficiency, enabling the development of high-performance batteries and solar cells. As the field evolves, nanotechnology will drive innovation across various manufacturing sectors.
Biomanufacturing is a transformative force in manufacturing, harnessing biological processes to produce materials, chemicals, and pharmaceuticals. This technology leverages living organisms such as bacteria, yeast, and cells to create products with higher precision and sustainability. In the manufacturing industry, biomanufacturing is poised to revolutionize the production of biofuels, pharmaceuticals, and bioplastics. It offers environmentally friendly solutions and reduces the reliance on traditional manufacturing processes that can be resource-intensive. Biomanufacturing represents a harmonious intersection of biology and technology, promising more sustainable and efficient manufacturing practices.
The Outlook & Future of Manufacturing
The manufacturing industry navigates a complex and precarious landscape characterized by various challenges, from supply chain constraints to sustainability pressures. However, despite secular headwinds, it has responded with remarkable innovation and appears well-positioned to continue that trajectory. Current technologies reshape manufacturing processes, including sustainability initiatives, virtualization, and computer-aided applications. Emerging technologies such as generative design, dark factories, neuromorphic engineering, digital threads, nanotechnology, and biomanufacturing promise to drive even greater operational efficiency, adaptability, and sustainability. As these innovations evolve, the manufacturing industry is poised to thrive in an ever-changing global environment, ensuring its position at the forefront of technological advancement.
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